Archives For finance function

How will the finance function fare in the face of significant disruptive future changes in our business and personal lives? Broad social changes, the unstoppable rise of digital, the new “technological” industrial revolution, a much more mobile connected and powerful consumer generation, transitioning business models, a much more challenging competitive landscape, the proliferation of risk, and so on. All of these, and other changes, present new challenges, as well as new opportunities, to businesses. By inference, they have significant implications for the future finance organisation too.

At ACCA, we believe the future for the finance organisation is bright, and the changing business landscape presents new opportunities for finance leaders. It is fair to say the historic reputation of the finance department has been biased towards stewardship, the control centre of the enterprise. But in an increasingly complex, volatile environment, whilst control and risk management responsibilities remain essential, too often the nomenclature of “back office” has been used to describe finance activities. This belies the increasingly critical role finance will have to play in leading the enterprise in its growth strategies, and providing the important financial insight it needs to drive value. Smart finance functions will ensure they strike the right balance.

Over the next 18 months ACCA will lead a global campaign to understand the leading practices finance functions are adopting in their goal to becoming smarter. How are best-in-class delivering the insights that make a real difference to corporate performance, whilst continuing to drive effective stewardship and control of the enterprise. The campaign has already identified a number of critical areas in which progressive finance functions must look to excel. Over the next 18 months, it will seek to understand and showcase the good practices, challenges, issues and opportunities corporate finance functions face in working smarter in four key areas: the quality of its leadership, the extent to which it effectively uses technology, its human capital practices, and its ongoing ambitions to transform the function. Visit accaglobal.com/smart for further information and to access our ongoing thinking in this area.

EMC moved to a global business services (GBS) model over four years ago, incorporating transactional finance processes such as accounts payable, revenue accounting, credit and collection, licensing and general accounting on a global basis. This step was part of an evolutionary process to increase scalability and efficiency; at implementation of the GBS model, the finance organisations’ shared services operations were aligned regionally and by business units, reporting to a host of management structures, which resulted in redundant operations.

The governing principal for our approach to talent management is simple – to convince our employees that GBS is a good place to grow a career by staying close to the business and continuously evolving our programmes as both the team and business needs change. As our organisation is global, and both insourced (operations in North and South America, China, Ireland and Costa Rica) and outsourced (operations in Dalian, Manila and Bangalore), that is a significant challenge. EMC’s GBS is fully aware of its talent ‘pain points’ and implements programmes accordingly. The organisation has found that the largest category of talent at risk is comprised of subject matter experts. In a GBS context, subject matter experts often do not have the management skills necessary to advance their careers, and find that the path to progression is not obvious. Similarly, GBS has identified first line managerial and supervisory talent bench strength also as an issue. Though significant progress is being made, we recognise effective finance talent management remains a work in progress

Solutions – know where you are at, build from within and create visibility in career options

Measuring the effectiveness of talent management approaches. There are several proof points that EMC monitors to ascertain whether talent management approaches are effective. For example, we use annual attrition percentages as a top-level indicator. Over the last few years, gross attrition across GBS has averaged 10%, with voluntary attrition maintained at 8%.

Building from within. The organisation believes that building, as opposed to buying strategic skills and capabilities, is a plus for existing staff, but also ensures that projects and programmes have a better success rate. Take, as an example, the company’s recent implementation of SAP across its finance processes. We determined that a deep understanding of the way in which the companies’ culture and processes operate was more important than specialist SAP skills, so there was a concerted effort to upskill staff that understood current business rules rather than bringing in new team members or contracting for a large number of consultants.

An emphasis on individual responsibility. Individuals are empowered to take responsibility for their own career progression. Programmes such as GBS ‘Rising Star’ list are designed with the sole purpose of surfacing good talent and making them free agents within the organisation. GBS also has a rotation programme, designed on the same principles as EMC’s college hire rotational programme.

Recognise that more can be done. With stability in its employment base, GBS is now looking at better linkage into the business. End-to-end career paths have been designed for, and implemented, linking GBS finance roles to that of the business, but the organisation is just now stepping back to determine how to path careers back from the business through GBS. As yet, there is no rotation programme moving business talent through GBS as a recommended career progression but it is something we are looking at.

The finance organisation at Intel is very much an influential finance operation in the sense that we report directly through the finance organisation to the CFO, and we have a key role to play in continuously challenging and helping drive value for the operations – so we are very business and operational impact focused. However, with the advent of our shared service operation, both transactional finance plus ‘higher value’ finance roles moved across.

From a retained finance function perspective this has created specific talent development challenges for us because many of our entry roles to develop our talent were lost, resulting in a retained finance organisation structure which had small numbers of finance personnel at more junior roles, small numbers at very senior roles, and too many roles in the middle – so essentially a circular shaped, rather than pyramid shaped organisational structure impacting on traditional career development paths. There may be very rational reasons why, from a cost and standardisation perspective, shared services makes sense, but it has development and succession implications for the retained finance team which are not always thought through.

Solutions – creating development paths in the retained function

Carve out new roles to facilitate development. We have systematically carved out roles, creating for example two junior roles rather than one senior post. This starts to rebalance the retained finance organisational structure and open up more career paths but critically it also allows us to intervene at the junior level and give people opportunities to develop the skills they will need upwards – we can take them on the journey and these are skills you can’t learn coming straight in at a senior level. It’s cost neutral but of course there is a headcount implication and we get measured on both – so we have to make the case consistently.

Support development opportunities through rigorous talent identification programmes. We have a talent identification process in place called ‘repeat high performers’ – each year one-fifth of our staff will be given this performance rating and if they meet this two years in a row, this categorises you as high potential which helps drive mobility because hiring managers become interested in you and from a corporate standpoint at a manager level it puts these individuals on everyone’s ‘radar’.

Create influence in the business and maintain finance ‘connectivity’ by exporting finance talent. We try and give finance people business operational experience. This allows us to retain finance staff outside of the finance function so that if we have a major capability issue in the function we can reach back out to the business and bring people back. We also adopt the same approaches across our geographic regions, monitoring which finance people are where and fitting them into the overall succession planning cycle. This is also critical in creating a strong finance reputation within the business and ensuring we are truly connected to the operation.

Reading a lot of the commentary on finance and the role of today’s CFO you’d be forgiven for thinking that today’s finance function spends all of its time on strategy formulation and execution. I don’t doubt for one second how important the role of finance as a strategic business partner to the organisation is, or the critical role progressive CFOs increasingly play in strategic support to the organisation. But it is also worth remembering the role the finance organisation plays in what I would call the fundamentals – cost management, cash-flow management, finance operations and so on. There are of course differences and changes in priorities – the strategy of the business, the prevailing state of the economy, its industry sector – are naturally factors which shape and influence the focus of finance leaders and the function at any given time. But it seems irrational to think that great finance functions are still not held to account on the strength of control and financial management of the organisation. This indeed is at the core of its fiduciary responsibilities. It’s also critical to get this right if you truly aspire to supporting the strategic agenda of the business – these multiple aims of the finance organisation are not mutually exclusive. Having this bedrock of broad finance capability is also, of course, particularly relevant in a period of on-going volatility and growth challenges.

We recently produced a report examining the future needs of the finance function, and the implications for developing the capabilities needed. The report, the complete finance professional, draws on a wide range of studies, including ACCA research specifically with CFOs and other finance leaders, to test these ideas out. The conclusions were very simple. Great finance functions needs to be able to draw on a wide range of finance capabilities. They can’t survive on staffing their functions with people schooled on a narrow version of management accounting, and this isn’t particularly healthy for developing the capabilities needed in future finance leaders either. Let’s consider the roles some finance professionals perform to illustrate the point – can financial analysts drive truly effective decision-making if they don’t have a broader understanding of risk; can internal auditors perform their roles effectively without a strong grounding across financial and management accounting disciplines; can accountants with investment appraisal responsibilities get by with no awareness of tax, or regulatory changes which may have implications on project benefits…and so on. I don’t quite think so.

Secondly, with public debt, currency instability, emerging market growth, commodity price rises and many other signs of significant volatility, finance leaders themselves are in a huge period of flux, change and uncertainty; we know the role of CFOs continues to evolve but it’s the shear breadth of skills and knowledge that is now called into play; also given the level of volatility in the global economy we see a real call out to balance the quest for growth with the need for control – this ‘balanced finance leadership’ really is as a hallmark of the top finance job right now. The report also comes to other simple conclusions – a recognition that the changing face of finance operations with the advent of shared services, outsourcing, centres of excellence and the retained organisation demands both excellence in traditional finance capabilities (e.g. process mastery, transparency in controls, specialised finance expertise) as well as new capabilities (transformation, project management, dealing with change, customer centricity and so on); and that strong finance functions earn the partnering mandate best by ensuring effective finance stewardship of the organisation as a strong foundation; in short you can’t neglect one for the other, it doesn’t quite work like that.

At ACCA we continue to advocate the need for breadth and depth of financial understanding in finance functions today.

It’s tough being a CFO these days. ACCA has just launched a paper, called The changing role of the CFO, sharing the outcomes of a number of CFO roundtables across the world – the results make interesting reading.

The big challenge facing finance leaders everywhere now, and moving forward, is volatility. More than ever before, we see greater focus on the finance function trying to support the business in decision making and forecasting, but it’s a big ask with so little certainty in the business environment.

Unfortunately this isn’t the only challenge facing CFOs, according to the finance leaders we spoke to. The other big issue is a lack of time, with many suggesting there are simply too many priorities to deal with.

The roundtables focused on how the future role of finance leaders is evolving. A number of key issues were identified: more regulatory pressure, greater risks, the increasing importance of technology, the challenges around providing business insight, and of course talent development.

The increasing breadth and challenge of the top finance job as it evolves will continue to call into play skills such as global leadership, communication and influencing skills.

Supporting the business with core finance activities is simply table stakes for most CFOs now as they seek to drive greater finance influence across the business, and critically support the organisation in its strategic approach and decision taking.

The upside of course is that this also provides finance functions and their leaders with some great opportunities.